Correlation Between Equity Bancshares and First Financial

Can any of the company-specific risk be diversified away by investing in both Equity Bancshares and First Financial at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Equity Bancshares and First Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Equity Bancshares and First Financial Bankshares, you can compare the effects of market volatilities on Equity Bancshares and First Financial and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Equity Bancshares with a short position of First Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Bancshares and First Financial.

Diversification Opportunities for Equity Bancshares and First Financial

0.43

Correlation Coefficient

Equity Bancshares  First Financial

Very weak diversification

The 3 months correlation between Equity and First is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Equity Bancshares and First Financial Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial Bank and Equity Bancshares is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Equity Bancshares are associated (or correlated) with First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial Bank has no effect on the direction of Equity Bancshares i.e., Equity Bancshares and First Financial go up and down completely randomly.

Pair Corralation between Equity Bancshares and First Financial

Given the investment horizon of 90 days Equity Bancshares is expected to generate 0.87 times more return on investment than First Financial. However, Equity Bancshares is 1.14 times less risky than First Financial. It trades about 0.12 of its potential returns per unit of risk. First Financial Bankshares is currently generating about -0.02 per unit of risk. If you would invest  3,080  in Equity Bancshares on February 2, 2024 and sell it today you would earn a total of  269.00  from holding Equity Bancshares or generate 8.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Equity Bancshares  vs.  First Financial Bankshares

Equity Bancshares

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Bancshares are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Equity Bancshares is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

First Financial Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Financial Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, First Financial is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Equity Bancshares and First Financial

The main advantage of trading using opposite Equity Bancshares and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Bancshares position performs unexpectedly, First Financial can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in First Financial will offset losses from the drop in First Financial's long position.

The idea behind Equity Bancshares and First Financial Bankshares pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.